The Electricity Regulation Amendment Act which President Cyril Ramaphosa has signed into law sets out far-reaching reforms of South Africa’s electricity sector, according to the Presidency.
The executive office said this included the establishment of a competitive electricity market.
Presidency spokesperson Vincent Magwenya said on Friday that the Bill amended the Electricity Regulation Act of 2006 to respond to current realities in the electricity sector and open up pathways to greater competition and reduced energy costs; increase investment; the establishment of an independent transmission company; and the imposition of severe penalties for damage to and sabotage of infrastructure.
He said the act provides for the establishment, duties, powers and functions of the Transmission System Operator SOC (TSO) – which must be established as an independent entity within five years – and for the National Transmission Company of South Africa to act as the TSO in the interim.
“It also provides for an open market platform that allows for competitive, wholesale or retail buying and selling of electricity,” he said.
The act also requires the development of a Market Code that will establish rules to govern the future competitive market, and outlines the process through which the code will be approved.
The act further clarifies the principles that apply to the setting or approval of prices, charges and tariffs, providing, among others that the National Energy Regulator of South Africa (Nersa) must enable an efficient licensee to recover the full cost of the licensed activity, must allow for reasonable return proportionate to the risk of the licensed activity, and may provide for incentives for continued improvement of technical and economic efficiency.
As it does so, the regulator may consider factors such as security of supply, the diversity of supply, and the promotion of renewable energy.
The act distinguishes between tariffs that must be set or approved by the regulator, such as network charges, and those which were subject to a direct supply agreement or arise as an outcome of a competitive market.
To ensure a level playing field for competition between multiple electricity generators, the act provides that the system operator shall not discriminate between different generators or customers in relation to dispatching or balancing the system, except for objectively justifiable and identifiable reasons approved by the regulator. Access to the transmission and distribution power system must be objective, transparent, and non-discriminatory.
Johann Els, the chief economist at the Old Mutual Group, said this was a positive development.
“The fact is there will be more suppliers of electricity so that there is more competition in terms of pricing and end the monopoly of Eskom in determining price increases,” Els remarked.
He said more competition meant lower inflation for all, lower increases in energy prices and electricity price increases.
“This is an expansion of the private sector role in the economy. No longer will regulators set prices demanded by one big company, such as Eskom and Transnet,” he said.
These changes were said to be in line with the broader reforms guided by the Energy Action Plan and the Eskom Roadmap, which aimed to modernise and transform South Africa’s electricity system to end load shedding and ensure long-term energy security.
It is anticipated that the diversity of energy suppliers and the promotion of renewables will stimulate demand for new skills, innovation and technology in the electricity sector, which will generate new industrial activity and in turn mitigate unemployment.
Reinforcing the protection of public infrastructure as part of the fight against crime, the law provides for fines of up to R1 million or five years’ in prison or both for persons who, among other offences damage, remove or destroy any transmission, distribution or reticulation cable, equipment or infrastructure.
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